Your commercial property is likely to be your second biggest overhead after staff costs and amount to around 15% of your total overheads. If you are ready to renew your existing lease agreement, it is important to do so in a way which protects your current and future business interests. Lease terms which were acceptable at the outset may no longer be suitable. As a tenant, you may need more space or the ability to sublet, and as a landlord, you may want to use the opportunity to insert a break clause. AQ Archers, a London based commercial property law firm, will help you negotiate terms that suit your business, both now, and as you grow.
Terms that are ripe for negotiation include the length of the lease, rent payments, break clauses, and repairs and maintenance.
How much negotiating power you have will depend on the state of the commercial property market at the time of renewing the lease. From the perspective of the tenant, if landlords are finding it difficult to find good tenants and there is a glut of properties available, you are likely to have far more bargaining power.
Renewing a business tenancy
If you are a tenant with ‘security of tenure’ under the Landlord and Tenant Act 1954, you will be entitled to automatically renew your lease on similar terms to those you already have. Your landlord has very limited grounds by which he can refuse to renew your lease, mainly, if you have persistently breached the terms of your lease agreement or they wish to redevelop the property.
However, you can contract out of the security of tenure provisions under the Act, but this is very risky as once your tenancy ends, your landlord can demand you quit the property immediately. Finding new premises that fit your organisation’s needs is not always easy, and if market rents have substantially increased, you may find yourself in an unsuitable property with higher overheads.
A strict process must be followed if a landlord wishes you to contract out of the security of tenure provisions. Before the lease is completed, your landlord must inform you in writing the lease will not be protected by the security of tenure provisions. You must be given at least 14 days to consider the notice and seek legal advice. Any consent to contract out of the security of tenure provisions must be given in writing.
Our team of highly qualified lawyers can advise you on all aspects of renewing a business tenancy and ensure your best interests are protected.
Rent reviews
Most commercial tenancies contain at least one rent review clause. The most common approach is for the rent to be reviewed by comparing the rent currently paid against market rent for comparable properties. Market rent reviews normally occur at three to five-year intervals.
The Law of Property Act 1925 section 196(1), states that notice of a rent review must be given in writing. Usually, you and your landlord will appoint property surveyors to help manage the negotiations.
If you and your landlord cannot agree on the new rate of rent, an independent valuer may be appointed to set the new amount. A well-drafted commercial lease agreement will include provisions for resolving rent review disputes. If you are having problems agreeing on the new rate of rent, AQ Archers can provide you with the support and practical advice you need to move forward.